Creative Destruction

The concept ‘creative destruction’ refers to the innovation and technological development process that fuels economic growth by routinely substituting outmoded businesses, goods, or services with newer and more effective ones.

For instance, the replacement of horse-drawn carriages by automobiles, the evolution of smartphones which changed media consumption and communication, the disappearance of reel cameras with the rise of digital photography, video rentals phased out by OTT platforms, and the impact of e-commerce on traditional brick-and-mortar shopping.

Joseph Schumpeter, in the early 1940s, coined the seemingly paradoxical term ‘creative destruction’ and popularised it as a theory of economic innovation and business cycle which is considered to be significantly influenced by the Marxian economic theory.

The theory, also known as Schumpeter’s gale, shows how innovation can be both: creative — bringing new industries, wealth, employment; and destructive — displacement of established industries, job losses in certain sectors, disruption for traditional businesses that fail to adapt to the changing landscape.